Anticipated Performance: Berkshire Hathaway's Shares, Led by Warren Buffett, Expected to Surpass S&P 500 Index in 2025
In 2024, the impressive S&P 500 Index (^GSPC 0.24%) graced investors with a splendid 24% increase, wrapping up the year in style. Buffett's iconic Berkshire Hathaway (BRK.A 0.81%, BRK.B 0.67%) mirrored this triumph, although its performance depended on the share class in question.
Over the previous two years, market growth propelled by tech juggernauts was unstoppable, giving the market a 53% surge. Berkshire Hathaway, however, couldn't keep pace, performing admirably nonetheless. Yet, I predict a dramatic shift in 2025, where Berkshire Hathaway will surpass the S&P 500's remarkable performance. Here's why.
Berkshire's Strength and Agility
Berkshire's remarkable gains, much like the S&P 500, have been fueled by equivalent market forces. A glance at Berkshire's roughly $300 billion equity portfolio, compared to the S&P 500 composition, reveals some striking similarities. The Magnificent Seven stocks, including Apple, combined with Broadcom – newly dubbed Fateful Eight – command more than a third of the broader benchmark index.
With Apple's towering presence in Berkshire's portfolio, consuming about 30% to 40% of its equity portfolio, Buffett and his team started offloading shares, significantly trimming down its stake by 67%. Presently, Apple contributes about a quarter to Berkshire's portfolio. As Buffett is not known for half-hearted investments, a further reduction in Apple shares seems plausible. Even without Apple's dominance, names like Bank of America, American Express, and sector peers form another substantial portion of Berkshire's portfolio.
The Fateful Eight might carry on ascending. In my opinion, however, these stocks might become more susceptible to downturns due to their inflated valuations, particularly in the face of earnings hiccups or broader market turbulence and inflation. Berkshire's stockpile of value names with robust dividends, such as Kraft Heinz, Sirius XM, and Citigroup, present a functional offset.
Berkshire's cash reserves exceeding $300 billion serve as a cushion, and this year's repurchases of just a few billion of Berkshire's own stocks uphold Buffett's tradition of maintaining a conservative stance, ensuring a steady pace with the market. Berkshire's adaptability and diverse investments also make it well-equipped to handle inflation, as evident in its plentiful energy assets and oil stocks.
The Market's Vulnerabilities
The S&P 500 may continue its upward movement in 2025. However, its ongoing success might be threatened due to extended concentration on the Fateful Eight stocks, and exceedingly high valuations. Broader market growth could also pose a challenge if Treasury yields remain elevated.
Berkshire Hathaway's diluted exposure to Apple, coupled with its diversified portfolio, positions it optimally. Its strong value names, including the potential to thrive during market pullbacks, and a resilience against inflation stand as significant advantages. Berkshire's ample stash of cash and its historically successful management team that navigates market crises offer considerable assurance for outperforming the broader market in 2025.
In 2025, the analyst predicts a shift where Berkshire Hathaway might surpass the S&P 500's impressive 2024 performance, citing Berkshire's strength and agility. Berkshire's diversified portfolio, including value names like Kraft Heinz, Sirius XM, and Citigroup, can act as a buffer against potential downturns or inflation.
Despite Apple's dominance in Berkshire's portfolio, Buffett and his team have reduced Berkshire's stake significantly, and further reductions seem plausible. This diversification strategy positions Berkshire Hathaway well, especially when compared to the S&P 500's overly concentrated reliance on a few 'Fateful Eight' stocks with inflated valuations.
Investors should also consider the potential risks in the S&P 500's continued success, such as its reliance on a few tech stocks and the impact of elevated Treasury yields on broader market growth. On the other hand, Berkshire Hathaway's resilient portfolio, managed by a historically successful team, and its ample cash reserves offer considerable assurance for outperforming the broader market, even in the face of challenges.
Given Berkshire Hathaway's adaptability, strong balance sheet, and resilience against inflation, investors might find it an attractive investment option for 2025, seeking a more balanced and less overly dependent portfolio than the S&P 500.
